Senator Franken thinks Apple is a Streaming Music Bully

By Jeff Gamet

Jul 23rd, 2015 11:38 AM EDT

Apple is using its market dominance to cut consumer choice in the streaming music space, or so thinks Senator Al Franken (D-MN). The Senator has asked the Federal Trade Commission to look into Apple's deals with record labels for Apple Music content over concerns that the iPhone and iPad maker may violating antitrust laws.

I am writing to encourage you to examine Apple's current dealing with app developers to determine whether the company is engaging in anticompetitive behavior in the music streaming market. As the digital music industry continues to evolve, we must ensure that this relatively new market allows for meaningful competition and that consumers have access to important information about the products and services available to them.

Instead of giving consumers more choices and lower prices, Sen. Franken raised concerns that Apple has pushed record labels into dropping deals for free streaming music tiers, and has given itself an unfair advantage by taking a 30 percent cut from in-app purchases for services such as Spotify and Pandora.

Mr. Franken goes on to say, "Apple's licensing agreements have prevented companies from using their apps to inform users that lower prices are available through their own websites, to advertise the availability of promotional discounts, or to complete a transaction directly with a consumer within their app."

Those terms Sen. Franken is so concerned about have been in place ever since Apple first offered in-app purchase options.

Consumer Watchdog has concerns about Apple Music, too. It's letter to the FTC to the claims Apple is using its market strength to kill off free streaming services. The group states, "At issue, in fact, is the proprietary information that Apple possesses about its subscribers’ credit cards and musical preferences, which it is leveraging over music labels in an attempt to rub out free (commercial sponsored) music platforms."

CW added that "Apple is utilizing its market power in much the way the company did in setting e-book prices."

Apple Music is the company's attempt to carve out a part of the streaming music industry for itself and puts it in competition with the likes of Spotify and Pandora. While competition is typically a good thing in the marketplace, Sen. Franken and CW think Apple is overstepping its bounds.

Next: Apple's pricing advantage

Apple's Price Advantage

Apple Music does have a pricing advantage in that Apple charges the same US$9.99 a month—the same as Spotify. But to avoid losing 30 percent of its monthly subscription fee, Spotify charges $12.99 to customers that renew through its iPhone app. That's a rate Spotify sets itself, and isn't dictated by Apple or its policies.

That extra $3 does make Apple Music look like a more affordable option, at least for subscribers that always pay through in-app purchases. Apple doesn't, however, block companies from offering subscribers a way to pay via websites, which is an option all streaming music services offer.

While companies are free to charge what they want, the record labels have pretty much pushed all streaming music services into the $9.99 a month model. Since Spotify feels it needs to bring in that much for all of its subscribers, it has to charge more for in-app purchases to make up the difference. To be clear: that's a decision Spotify made, not a price point Apple imposed.

Spotify and other streaming music services are in an awkward position because they have to choose between offering a competitive price for in-app purchases, or take a loss when they hand over Apple's 30 percent cut. For app developers selling games and add-on features, that 30 percent may be reasonable, but in the streaming music market where margins are already tight, the message seems to be that's too steep.

Apple's App Store terms are straightforward, but in this case they also create a murky zone. Apple doesn't dictate what companies charge for their in-app purchases, nor does it require them to make iPhone apps. Companies are free to support the iPhone, or not.

On the other hand, supporting the iPhone is essentially a market requirement because that's the platform a majority of their customers are using. Avoid the iPhone, and you'll miss out on a lot of customers and a lot of revenue.

Apple could take a lower cut, like 10 or 15 percent, for in-app subscription purchases, which would be easier for companies like Spotify and Pandora to swallow. That doesn't mean Apple will lower it's take—at least not yet. Assuming the FTC decides to launch a formal investigation and determines Apple is using its App Store policies to gain an unfair advantage, it could be forced to change its terms.

The FTC has been asking questions about Apple's streaming music dealings, but hasn't launched a formal investigation yet. Sen. Franken clearly knows that, so his request is a way of putting pressure on the agency to take its inquiry and turn it into an investigation. If that happens, Apple will have to deal with more than complaints about lost music libraries.